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:: Scrap Metal Industry - Penalties
While
not all
cases
warrant
the
assertion
of
penalties,
the
penalties
discussed
below
should
be
considered
when
applicable.
As with
any
audit,
penalties
should
be
asserted
only
where
the
facts
and
circumstances
of the
individual
case
warrant
their
application.
Refer
also to
the
Internal
Revenue
Manual
(IRM),
that is,
the
Penalty
Handbook,
for more
information.
For
additional
information,
contact
your
fraud
coordinator
regarding
the
applicability
of the
fraud
penalties
and
refer to
the
Listing
for
Badges
of Fraud
contained
in text
940 of
IRM
4231.
Civil
Penalties
Negligence
Consideration
should
be given
to the
assertion
of the
accuracy-related
penalty
if there
is an
underpayment
of tax
and the
taxpayer
has
failed
to
maintain
adequate
business
records.
IRC
section
6662
generally
imposes
a
penalty
on the
portion
of any
underpayment
due to
negligence
or
disregard
of the
rules or
regulations.
The
penalty
is equal
to 20
percent
of the
portion
of the
underpayment
due to
negligence
or
disregard
of the
rules or
regulations.
Negligence
involves
a lack
of due
care or
failure
to do
what a
reasonable
and
ordinarily
prudent
person
would do
under
the
circumstances.
Negligence
includes
any
failure
to make
a
reasonable
attempt
to
comply
with the
provisions
of the
Code.
The term
disregard
includes
any
careless,
reckless,
or
intentional
disregard.
Fraud
IRC
section
6663
states
in part
that:
if
any
part
of
any
underpayment
of
tax
required
to
be
shown
on a
return
is
due
to
fraud,
there
shall
be
added
to
the
tax
an
amount
equal
to
75
percent
of
the
portion
of
the
underpayment
which
is
attributable
to
fraud.
If
the
Secretary
establishes
that
any
portion
of
an
underpayment
is
attributable
to
fraud,
the
entire
underpayment
shall
be
treated
as
attributable
to
fraud,
except
with
respect
to
any
portion
of
the
underpayment
which
the
taxpayer
establishes
(by
a
preponderance
of
the
evidence)
is
not
attributable
to
fraud.
Failure
to File
Penalty
IRC
section
6651(a)(1)
provides
for a
penalty
for
failure
to file
tax
returns.
Unless
the
failure
to file
the
return
is due
to
reasonable
cause
and not
due to
willful
neglect,
5
percent
of the
amount
of such
tax is
added to
the
amount
required
to be
shown as
tax on
the
return,
if the
failure
is not
for more
than one
month.
If the
failure
is for
more
than 1
month,
an
additional
5
percent
is added
for each
additional
month or
fraction
thereof
during
which
such
failure
continues,
not to
exceed
25
percent
in the
aggregate.
Fraudulent
Failure
to File
Tax
Return
IRC
section
6651(f)
provides
for an
increase
in the
delinquency
penalty
for
fraudulent
failure
to file.
The
penalty
is
increased
to 15
percent
per
month,
to a
maximum
of 75
percent
of the
tax due.
The
burden
is on
the IRS
to prove
that the
failure
to file
is
fraudulent.
You may
consult
the
District
Counsel
for
advice
on legal
or
factual
issues
regarding
this
penalty.
Criminal
Referrals
In the
event
that
evidence
of
certain
criminal
activity
is
observed,
it will
be
necessary
to make
a
referral
to the
Criminal
Investigation
Division
(CID),
pursuant
to IRM
4565.2.
To
assist
in
determining
the
types of
activity
that
should
be of
concern,
the
following
criminal
provisions
are
described.
Fraud
and
False
Statements
IRC
section
7206(1)
states
that:
any
person
who
. .
.
[w]illfully
makes
and
subscribes
any
return,
statement,
or
other
document,
which
contains
or
is
verified
by a
written
declaration
that
it
is
made
under
the
penalties
of
perjury,
and
which
he
does
not
believe
to
be
true
and
correct
as
to
every
material
matter
. .
.
shall
be
guilty
of a
felony
and,
upon
conviction
thereof,
shall
be
fined
not
more
than
$100,000
($500,000
in
the
case
of a
corporation),
or
imprisoned
not
more
than
three
years,
or
both,
together
with
costs
of
prosecution.
This
sanction
is a
viable
option
when the
Government
is
unable
to
establish
an
additional
tax due.
IRC
section
7206
states
in part
that:
any
person
who
. .
.
[w]illfully
aids
or
assists
in,
or
procures,
counsels,
or
advises
the
preparation
or
presentation
under,
or
in
connection
with
any
matter
arising
under,
the
internal
revenue
laws,
of a
return,
affidavit,
claim,
or
other
document,
which
is
fraudulent
or
is
false
as
to
any
material
matter,
whether
or
not
such
falsity
or
fraud
is
with
the
knowledge
or
consent
of
the
person
authorized
or
required
to
present
such
return,
affidavit,
claim,
or
document
. .
.
shall
be
guilty
of a
felony
and,
upon
conviction
thereof,
shall
be
fined
not
more
than
$100,000
($500,000
in
the
case
of a
corporation),
or
imprisoned
not
more
than
3
years,
or
both,
together
with
the
costs
of
prosecution.
In
addition,
18 USC
section
371
conspiracy
charges
may be
brought
against
parties
engaged
in
schemes
to
underreport
income
derived
from
dealing
in scrap
metals.
For
example,
where
the
parties
to these
schemes
agree to
provide
false
invoices
or make
checks
out to
fictitious
payees,
the
parties
may be
considered
to have
entered
into a
conspiracy
to evade
tax or
to
generally
defraud
the
United
States.
Attempt
to Evade
or
Defeat
Tax
IRC
section
7201
states
that:
[a]ny
person
who
willfully
attempts
in
any
manner
to
evade
or
defeat
any
tax
imposed
by
this
title
or
the
payment
thereof
shall,
in
addition
to
other
penalties
provided
by
law,
be
guilty
of a
felony
and,
upon
conviction
thereof,
shall
be
fined
not
more
than
$100,000
($500,000
in
the
case
of a
corporation),
or
imprisoned
not
more
than
5
years,
or
both,
together
with
the
costs
of
prosecution.
Willful
Failure
to File
Return,
Supply
Information,
or Pay
Tax
IRC
section
7203
states
in part
that:
[a]ny
person
required
under
this
title
to
pay
any
estimated
tax
or
tax,
or
required
by
this
title
or
by
regulations
made
under
authority
thereof
to
make
a
return,
keep
any
records,
or
supply
any
information,
who
willfully
fails
to
pay
such
estimated
tax
or
tax,
make
such
return,
keep
such
records,
or
supply
such
information,
at
the
time
or
times
required
by
law
or
regulations,
shall,
in
addition
to
other
penalties
provided
by
law,
be
guilty
of a
misdemeanor
and,
upon
conviction
thereof,
shall
be
fined
not
more
than
$25,000
($100,000
in
the
case
of a
corporation),
or
imprisoned
not
more
than
one
year,
or
both,
together
with
the
costs
of
prosecution.
. .
.
Fraudulent
Returns,
Statements,
or Other
Documents
IRC
section
7207
states
that:
[a]ny
person
who
willfully
delivers
or
discloses
to
the
Secretary
any
list,
return,
account,
statement,
or
other
document,
known
by
him
to
be
fraudulent
or
to
be
false
as
to
any
material
matter,
shall
be
fined
not
more
than
$10,000
($50,000
in
the
case
of a
corporation),
or
imprisoned
not
more
than
1
year,
or
both.
. .
.
Failure
to File
Form
8300
IRC
section
6050I(a)
requires
that any
person
is
engaged
in a
trade or
business,
and who,
in the
course
of such
trade or
business,
receives
more
than
$10,000
in cash
in
either
one
transaction
or two
or more
related
transactions,
file a
return
with
respect
to such
transactions
with the
Secretary.
Cash is
defined
to
include
not only
U.S. and
foreign
coin and
currency,
but also
cashier's
checks,
bank
drafts,
traveler's
checks,
and
money
orders
having a
face
amount
of not
more
than
$10,000
if
received
in a
designated
reporting
transaction
or in
any
transaction
in which
the
recipient
knows
that
such
instrument
is being
used in
an
attempt
to avoid
the
reporting
of the
transactions
under
section
6050I.
The
return
is made
on Form
8300,
Report
of Cash
Payments
Received
in a
Trade or
Business,
and must
be filed
by the
15th day
after
receipt
of the
reportable
amount
(Treas.
Reg.
section
1.6050I-1(e)).
In
general,
IRC
section
6721(a)
imposes
a
penalty
for
failing
to file
a Form
8300 in
a timely
fashion
or
provide
the
correct
information
of $50
per
return,
not to
exceed
$250,000
for all
such
failures
in a
calendar
year.
There is
no
requirement
to file
the Form
8300 if
cash is
received
in a
transaction
reported
under
Title 31
by a
financial
institution
or in a
transaction
occurring
outside
the
United
States.
The
penalty
may be
reduced
or
waived
if the
failure
is
corrected
or if it
is due
to
reasonable
cause.
See IRC
sections
6721(b)
& (c)
and 6724
and the
regulations
thereunder.
If the
failure
is due
to
intentional
disregard,
the
penalty
amount
is
increased
to the
greater
of
$25,000
per
failure
or the
amount
of cash
received
in the
transaction,
up to
$100,000
per
transaction
(IRC
section
6721(e)(2)(c)).
This
applies
to
intentional
failures
relating
to cash
received
after
November
5, 1990.
For cash
received
prior to
that
date,
the
penalty
for
failure
due to
intentional
disregard
is the
greater
of $100
or 10
percent
of the
aggregate
amount
required
to be
reported.
The
$250,000
limitation
on
penalties
per
calendar
year
does not
apply to
intentional
failures,
and
intentional
failures
are not
counted
in
computing
the
$250,000
limitation.
See IRC
section
6721(e)(3).
IRC
section
6050I-1(e)
requires
that
every
person
required
to file
a Form
8300
shall
also
furnish
to each
person
whose
name is
set
forth in
the Form
8300 a
statement
showing
the
filer's
name and
address
and the
aggregate
amount
of cash
set
forth in
the Form
8300.
The
statement
must be
provided
on or
before
January
15 of
the year
following
the
calendar
year for
which
the Form
8300 is
required
to be
filed.
Under
IRC
section
6722(a),
the
penalty
amount
for
failing
to
provide
the
statement
required
under
section
6050I(e)
is $50
for each
failure,
not to
exceed
$100,000
in the
aggregate
per
calendar
year.
When
such
failure
is due
to
intentional
disregard,
the
penalty
is
increased
to the
greater
of $100
or 10
percent
of the
amount
required
to be
reported
correctly
per
failure
without
limitation.
Penalties
for the
intentional
disregard
are not
taken
into
account
in
computing
the
$100,000
limitation.
See IRC
section
6722(c).
Penalties
may be
waived
if the
failures
are due
to
reasonable
cause.
See IRC
section
6724 and
the
regulations
thereunder.
In
addition
to the
civil
penalties,
any
person
intentionally
violating
IRC
section
6050I
may be
subject
to
criminal
sanctions.
These
criminal
sanctions
include
IRC
section
7203,
Failure
to File;
IRC
section
7206(1),
Subscribing
to a
False
Document;
and IRC
section
7206(2),
Aiding
and
Assisting
in the
Preparation
of a
False
Form
8300.
Under
IRC
section
6050I(f)(2),
the same
civil
and
criminal
sanctions
that
apply to
the
filer
may also
apply to
a payor
or other
person
who
causes a
failure
or
structures
or
assists
in
structuring
a
transaction
to avoid
the cash
reporting
requirements.
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